The pound fell on Monday against most currencies and especially against the dollar, losing more than 1% to $1.21. However, the index of Britain’s blue chip companies hit a fresh high as multinational corporations that report large incomes in dollars saw their value rise.

UK firms brace for further Brexit price rises, surveys show

Read more

The FTSE 100 closed at 7,238, up 0.4%, its eighth consecutive day of record highs – a winning streak it last achieved in May 1997 after Tony Blair’s Labour general election landslide.

One analyst said the increasingly belligerent war of words in recent weeks between London and Brussels and the row over the resignation of UK ambassador to the EU Sir Ivan Rogers had left currency market traders in no doubt Britain was heading for a hard Brexit, even before May’s comments.

“After some respite at the end of last year, the market [was betting against] sterling even before Theresa May gave her interview on Sunday, suggesting that until a clear plan is presented by the government, the market’s fears [dominate] that Brexit will be a disaster for the UK,” said Kathleen Brooks, research director at brokers City Index.

Brooks said she expected to see further declines in the coming weeks, “until we get some concrete detail about what the UK’s exit from the EU will actually look like”.

The Brexit vote in June sent the currency tumbling as traders warned that any restrictions on exports to the EU would harm the UK’s growth prospects.

The chancellor, Philip Hammond, steadied the pound after it slumped to $1.18 in October, following remarks that it was important to maintain the strongest possible links with the single market.

But persistent falls in the currency’s value during December towards the previous low point has increased the cost of imported goods and forced businesses to say that price rises are in the pipeline.

Supermarkets have signalled they will need to increase prices in the coming months, while transport firms are likely to pass on higher petrol and diesel costs.

Holiday firms have reported strong sales of summer packages, but the likelihood of a weaker currency reducing the spending power of UK tourists abroad is expected dampen demand.

Chris Saint, a currency analyst at stockbroker Hargreaves Lansdown, said May’s comments had done “little to dispel concerns over the apparent lack of a coherent plan for upcoming negotiations”.

He said sterling was very likely to become more sensitive to continued signs that the government would adopt a hardline approach as it nears the date for triggering article 50.

The pound also fell against the euro to a seven-week low of €1.15, which Saint said also illustrated the belief among traders that Britain’s economic fate was tied to single market access.

Nick Parsons head of market strategy at National Australia Bank, said: “We think it was the prime minister prioritising immigration over a trade deal that pulled the rung from under sterling.”

He added: “The optimism in late November, early December had been based on an apparent desire to secure a trade deal and yesterday was a marked shift [from] that.”

Analysts said separate to the pound’s decline, the dollar was strengthened after signs of higher wages in the December US jobs report, which is expected to persuade the US central bank to raise interest rates.

Charles Evans, president of the Chicago Federal Reserve, is known for his reticence in raising rates. But even he has said US interest rates could go up three times this year, faster than he expected a few months ago.

The FTSE 100, which is dominated by oil and mining companies, has grown strongly in the new year in response to solid economic data and the prospect of higher earnings in dollars. The index is up 8% since November.

Miners Anglo American, Glencore and BHP Billiton were among the top gainers, tracking the price of copper higher.

“The FTSE is still currency-led, with Brexit uncertainty over the weekend grinding it higher,” said Mark Ward, head of execution trading at Sanlam Securities UK. “I don’t think these markets will go lower any time soon.”

The FTSE small-cap index also hit a new record high of 5,238.08 points in early trade, trading up 0.3% at 5,230.99 points.